Diwali sales, analysts and companies indicate that the economy may be finally turning for the better

The good news for the overall economy is that the ongoing festive season may have just set the tempo for more secular cheer in the quarters ahead.Malini Goyal | ET Bureau | Updated: November 08, 2015, 09:46 IST

Anand Chandrasekaran, 37, knows exactly what a bumper Diwali feels like. The chief product officer of Snapdeal is experiencing one. Snapdeal's "Ultimate Monday Sale", which has been on for the past six Mondays and offered discounts between 30 per cent and 80 per cent, has been a big hit.

The Okhla, New-Delhi-headquartered etailer says it managed to clock 18,000 orders an hour (as against 2,000 an hour a year ago), two-thirds of those coming from smaller cities.

It sold nearly five mobile phones every second and on "Electronics Monday Sale" it sold mobile phones worth Rs 500 crore. Snapdeal had seen a 350 per cent jump in new users in this period and has shipped over 11 million orders during the festive season till Friday. On the back of all this, the e-tailer claims it has boosted its market share in the ecommerce space by five per cent.

"Diwali is incredible. It always creates a new normal," says a beaming Chandrasekaran. Typically, one would expect such a traffic surge to dip after Diwali. It does but not by as much as you would think. "It merely goes down by 5-10 per cent. And from there we build our growth for next year," he explains.

Roughly an hour away from the Snapdeal headquarters, in Gurgaon, Shubhajit Sen, chief marketing officer of Micromax, echoes a similar mood. He expects one of the best October sales — not just of mobile phones but also LED TVs — this year. In the last two-three months, he says, Micromax has been breaking its own sales records.

Cut to Mumbai, where Rashesh Shah, chairman, Edelweiss Group, is happy with what he sees. His company has been growing at a compounded annual rate of 40 per cent over the last four years with the headcount rising from 4,000 to 6,000 during the period. "Household savings have been diverted from real estate and gold to building financial assets. Most financial services companies are doing well," says Shah.

India's automobile industry, witnessing negative or flat sales growth since 2012, may finally see its wheels moving. Carmakers saw sales grow by 22 per cent in October over a year ago to touch 2.66 lakh units. Seven of the top 10 carmakers posted double-digit growth. Two-wheeler sales too are looking better with 10 per cent growth in October.

Honda Motorcycle & Scooter India posted its highest ever sales of 4.49 lakh units, a growth of 19 per cent over the October of 2014. "Perhaps we are in the process of turning the corner," says a guarded Jnaneswar Sen, senior VP (sales & marketing), Honda Cars India, which is expecting a healthy double-digit growth this festive season.

Cheering the Good News

Diwali is here and the mood is festive: newspapers don colourful jacket ads, and steep discounts are luring consumers. Thrifty Indian consumers, who have been circumspect so far, are finally opening up their purse strings. And for a change, executives like Chandrasekaran are worrying about logistics and supply rather than demand.

"From a consumption standpoint, this is the best festive season since 2009," says Arvind Singhal, chairman, Technopak Advisors. Even offline retailers such as Future Group, Arvind Brands and Shoppers Stop, which have been feeling the heat from aggressive online sales, are seeing double-digit sales growth.

The Monster Employment Index, which tracks job openings online, was at an 18-month high in September, the best in the last five Septembers. "The most interesting and encouraging part is that 25 of the 27 industries that the index captures have registered positive growth, including manufacturing," says Sanjay Modi, managing director, Monster India.

Sean Blagvedt, cofounder, Babajobs.com, a job portal that has four million registered job seekers and caters to blue-collar workers, says he is seeing the strongest job openings in the seven years of his business. Hari Menon, cofounder of BigBasket.com,an online grocer, has been ramping up the work force — from 1,500 two years back to 5,500 today and by March next year he expects to have 8,000 people on board. Salaries too are moving up fast — from Rs 8,000-9,000 two years back for delivery boys, they're now up to Rs 13,000-14,000 (far outpacing minimum wages).

Rituparno Chakraborty, cofounder at staffing firm Teamlease, is seeing temp openings rise by 20-25 per cent over a year ago, adding up to a number upwards of 75,000 jobs, thanks to the big demand from ecommerce and logistics. Harpreet Grover, cofounder of CoCubes, a company that does online assessment of students (1 million annually) in 2,000 colleges across 500 campuses in 300-400 cities, says hiring numbers have gone up.

Hiring interns in the third year — something that happened only during the boom period of 2007-08 — has returned, signalling buoyancy in the job market. "This is the best we have seen in the last three years," he says.

K Sudarshan, managing partner at executive search firm EMA Partners, says he is seeing new sectors such as solar energy, digital payment and ecommerce ramping up their hiring. "This is one of the best times I have seen in the recent past. This may be just the early stage of a phase that could take us to a 2007-08 like situation," he says.

It's also a time when virtually every other macro-economic indicator — inflation, interest rates, fuel prices, GDP growth rate, fiscal deficit — is looking better than it was in the last three-five years. Strong growth in new business orders and robust demand propelled the services sector to an eight-month high in October, according to Nikkei Services Business Activity Index for India.

Viewed from outside, relative to the world, the mood in India looks even more upbeat. India today is one of the fastest growing economies in the world. And Indians reflect that mood. Indian consumers lead the world in the latest (third-quarter) Nielsen Global Survey index of Consumer Confidence and Spending Intentions.

India (with a score of 131) is followed by the US (119), the Philippines (117) and Indonesia (116), according to the survey.

On a series of global rankings, India has moved up the pecking order. According to Brand Finance, India's nation brand value is up sharply by 32 per cent, moving it from eighth to seventh in the global ranking. After slipping for four years, the country is up four notches in the World Bank's Doing Business Report 2016. After dipping for five years, India's ranking in the latest Global Competitiveness Report was up 16 places to 55. And according to a recent Financial Times report, India has emerged as the top FDI destination in the world, ahead of the US and China.

Glass Half Empty

Yet, not everybody is cheering. "The macro-economic indicators show a reasonably healthy economy. Overall growth rate is robust, fiscal deficit and current account deficits are in control and inflation is also in control. However, these indicators do not reflect the drift we see in overall consumer and investment sentiments," says Mahesh Vyas, managing director of CMIE, an economic research think-thank.

For example, growth in India's manufacturing sector was slowest in 22 months in October as per the Nikkei Manufacturing Purchasing Managers' Index, reflecting a softness in demand. The RBI's consumer confidence index has dipped from a peak of 126.7 in March 2015 to 119.2 in September 2015. The heavy debt burden of India Inc — aggregate debt of the top 500 corporate borrowers stood at nearly Rs 28.76 lakh crore according to research firm India Ratings — continues to weigh heavy on investment plans.

CMIE's CapEx survey show that there is no pickup in project completion and, adjusted for the extraordinary announcements made during state-government sponsored investment melas, there is no pick-up in new investments. Industry continues to be plagued by overcapacity and poor demand. Exports have been falling and the corporate sector has been plagued by lacklustre top-line growth and poor margins, says Vyas.

They say they see a wide split between the rural and the urban economy, the two in fact competing with each other. Earlier, while the rural economy was booming with rising rural wages and high crop prices, the urban economy was hurting with high inflation and high interest rates. The scenario has now reversed. "The urban economy is doing relatively well. Consumption and demand are better," says Joshi. "The urban economy is showing definite signs of revival," adds Barua.

The infrastructure sector, so crucial for both kicking off the investment cycle and also for India's development, is picking up from the Railways to the highways. For example, the award of new highway works has jumped from 5.2 km per day in 2012-13 to 8.7 km per day in 2013-14 to 23.4 km per day currently. "We are reforming to transform the nation in a marathon, not a sprint," prime minister Narendra Modi said at a finance ministry conclave on Friday, reaching out to those getting impatient with the progress that the economy has made in the last 17 months.

For those not yet convinced, a glance at the outside world just might help. Take the US economy for example which is heading into the holiday season (Thanksgiving, Christmas and New Year), which plays a Diwali-like role in spurring consumption. The latest data released shows that the US economy grew just 1.5 per cent in the July-September quarter as against 3.9 per cent in the second quarter (April-June) and 4.3 per cent in the third quarter of 2014. US exports have declined for the first time since the Great Recession of 2008, thanks to a strong dollar and a global economic slowdown.

This impacts consumer spending. Experts forecast that holiday shopping could see the slowest year-on-year growth since 2009. Forecasts for the rise in holiday spending in 2015 are modest — 2.8-3.7 per cent as against 4.4 per cent in 2014 holiday season. Offline retail will hurt even more. Analytics firm Retail-Next forecasts that US retailers could see foot traffic drop 8.1 per cent in November-December from a year ago.

The job market in the US is holding up well with companies adding an average of over 2,00,000 jobs a month for close to 18 months now. But that hiring, skewed towards lower-paying service jobs, has yet to bring significant wage gains. Lower fuel prices have put extra money in consumers' hands — $100 billion since last year, according to New York-based consultancy firm AlixPartners. But still consumers aren't loosening their purse strings and this year is expected to be one of the weakest holiday seasons in years.Chinese CheckersLet's shift to China now. The Chinese economy is hurting — the July-September quarter saw the GDP growth rate dip to under 7 per cent for the first time since the global economic crisis. And it is on its way to posting the slowest economic growth in 25 years. China is an economy heavily reliant on exports, which have slumped to a six-year low.

Weakening trade and factory overcapacity are fuelling concerns around job losses and unrest, forcing the government to take a series of bold steps. For example, since last November, interest rates have been cut five times. And it recently relaxed its one-child policy for all citizens.

According to FT Confidential Research, household income growth has fallen to its lowest since 2011. Surveys and reports suggest that wage growth is at its weakest since June 2012. And the People's Bank of China's depositor survey for July-September found that consumers were most negative about their incomes since 2009.

Yet consumer spending is holding up. September retail spending bucked the trend, beating forecasts (10.8 per cent) to grow at an annual rate of 10.9 per cent. "Chinese consumers spent $111.1 billion in the Spring Festival early this year," says Kunal Sinha, a strategy & insights consultant based in Shanghai for the last 10 years.

Experts are now talking about the two-speed nature of the Chinese economy — on one hand while the export-focused economy is slowing down, the government is taking every possible step to boost domestic consumption.

Now juxtapose India's festive season fireworks and bright lights with the sombre global backdrop, and suddenly even the areas of concern are consigned to oblivion. "Festivals become places where the economy advertises itself," says Santosh Desai, chief executive, Future Brands.

Consumption is about the experiential economy, the mood, the sentiment and the touchyfeely stuff. Data is about the measured economy, the hard numbers which on a day-to-day basis may not mean much for a lay person.

For them the crowded malls, bumper discounts, online sales, people bustling around with multiple shopping bags are a good proxy of an economy on an upswing. "In a real sense the measured economy and the experienced economy are often not aligned. It is the festivals where the abstraction of the economy becomes real," says Desai.

It is for these reasons that the festival season become so important in shaping the consumer sentiments. "Those 100 days could contribute close to half of annual sales in many product categories," says ADA Ratnam, president, consumer lifestyle, Philips India.

Fuelling Consumption

There are many reasons why consumers should be out shopping this festive season. Low fuel prices, interest rates and inflation have provided some headroom. Investments in bigticket asset class such as real estate are down, leaving households with more disposable income. Etailers are doing their bit to rev up the mood and sentiments.

"With big discounts on MRP, ecommerce has given direct savings to consumers," says Technopak's Singhal. Say, on a gross merchandise value (GMV) of $10 billion, even if they offer 20 per cent discount, it would mean savings of $2 billion, or roughly Rs 13,000 crore, which reenters the market as additional consumer spend.

According to an SBI Research report, etailing has grown at a compounded average rate of 56 per cent during 2009-14. It estimates that the discounts offered (for a select group of products) alone could have lowered Consumer Price Inflation by 25 basis points.

"My business has gone through the roof. We are growing more than four times vis-avis last year," says Ambareesh Murty, founder, Pepperfry, an etailer of home products. Between 2012 and 2015, his staff count has gone up from 30 to 2,500 and today he owns a fleet of 500 trucks that move its products across 17 cities.

Clearly, online retailers may be more inclined to party this festive season than their offline counterparts, and this Diwali, urban homes will perhaps be more brightly lit than rural households. The good news for the overall economy is that the ongoing festive season may have just set the tempo for more secular cheer in the quarters ahead.